Overextended US equity rally given a scare but attempts to return to business as usual

EU mid-market update: Overextended US equity rally given a scare but attempts to return to business as usual; China responds to tariffs with export bans.

Notes/observations

- Negative mood spilled over into Europe after US indices dipped sharply in late trade, with analysts attributing the move to options trade amidst light Dec volume and overextended rally in recent weeks. US futures themselves have attempted to pare the losses with steady gains overnight in an attempt to resume the Santa rally.

- Declining bond yield narrative continues in line with inflation and rate expectations. No change to ECB stance this morning, De Guindos reiterating too early to talk about rate cuts.

- China largest banks said to be planning to cut deposit rates by up to 25bps from tomorrow.

- China also responded to overnight reports of Biden Admin looking into additional tariffs on Chinese goods, by banning exports of some rare-earth processing technologies and China’s MOF said to lower import tax for some goods to ‘aid manufacturing’. Also in verbal response, MOFCOM noted US is abusing export control measures.

- Notable lift in JPY (yen) currency after Japan Cabinet Office raised CPI and GDP forecasts for FY24 and FY25, implying BoJ may have to exit negative rate policy some time down the 2024 road.

- Boeing moves higher in premarket after incremental aircraft approval in China for 787, comes, follows approval of 737-Max yesterday.

- Asia closed mixed with Nikkei225 under-performing at -1.6%. EU indices are -0.1% to -0.7%. US futures are +0.5-0.7%. Gold +0.2%, DXY -0.1%; Commodity: Brent +0.2%, WTI +0.2%, TTF +4.3%; Crypto: BTC +2.5%, ETH +0.4%.

Asia

- South Korea Nov PPI Y/Y: 0.6% v 0.7% prior.

- Japan Cabinet Office raised its CPI and GDP forecasts for both FY24 and FY25. Raises FY23/24 (current year) Headline CPI from 2.6% to 3.0% and raised the FY24/25 Headline CPI from 1.9% to 2.5% (both above BOJ target). Projections said to raise the FY23/24 GDP growth forecasts from 1.3% to 1.6% and raise FY24/25 GDP growth forecasts from 1.2% to 1.3%.

- Philippine Central Bank (BSP) maintained the 2-4% inflation target range through 2026.

- China largest banks said to be planning to cut deposit rates on Fri, Dec 22nd.

Europe

- ECB's Kazaks (Latvia, hawk) reiterated stance that Deposit Rate would remain at 4.00% for some time before a likely cut. Reiterated ECB Council view that was not as optimistic as markets were on the first rate cut timing. Believed the first rate cut could come around mid-2024.

- UK Dec Lloyds Business Barometer: 35 v 42 prior.

Americas

- Fed's Harker (voter; non-voter in 2024): Hearing the economy is starting to soften faster than data suggests; Things are looking better for inflation outlook. Noted that the Fed won't cut rates right away; Rates should move down but not right away.

- Biden Administration said to be exploring raising tariffs on some Chinese goods, including Chinese EVs and solar products.

- Argentina Pres Milei announced broad economic reforms package, including privatizing firms and easing state controls; Argentina's crisis was the fiscal deficit.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.30% at 476.52, FTSE -0.18% at 7,701.75, DAX -0.37% at 16,671.00, CAC-40 -0.35% at 7,557.20, IBEX-35 -0.04% at 10,096.86, FTSE MIB -0.23% at 30,290.00, SMI -0.52% at 11,086.90, S&P 500 Futures +0.58%].

Market focal points/key themes: European indices opened lower across the board and remained under pressure through the early hours of trading; loss of risk appetite seen in line with share drop during US session yesterday; sectors that managed to hold on to gains include financials and consumer discretionary; among sectors leading the way lower are real estate and industrials; Crit to take majority stake in Openjobmetis; reportedly Swisscom to make offer for Vodafone Italy; earnings expected in the upcoming US session include Nike, Carnival and CarMax.

Equities

- Financials: Commerzbank [CBK.DE] +2.5% (approval for €600M buyback), Sydbank [SYDB.DK] +1.5% (raised guidance).

- Healthcare: Philips [PHIA.NL] -2.5% (device recall), Sanofi [SAN.FR] -0.5% (discontinues study).

- Industrials: Smurfit Kappa [SKG.UK] +1.0% (shareholder letter on strategic alternatives to potential acquisition of Westrock; Urges to consider potential merger with International Paper), Airbus Group [AIR.FR] -0.5% (key China's CAAC clearance on Boeing 737 MAX deliveries to China), Exel Industries [EXE.FR] +7.5% (results, new CEO).

- Technology: STMicroelectronics [STM.FR] -1.5% (Micron earnings).

- Materials: Covestro AG [1COV.DE] +1.0% (reportedly ADNOC formally submitted €60/shr offer).

Speakers

- ECB's De Guindos (Spain) stated that was too early to talk about a cut in interest rates; almost all income indicators had returned to their pre-pandemic levels and the focus was now on fighting inflation. Expect to see the first interest rate cut when current level help bring inflation down to 2%; Stressed that ECB was data dependent.

- Sweden Finance Ministry updated its economic outlook which raised the 2023 GDP forecast from -0.8% to -0.5% whiele cutting the 2024 GDP growth from 1.0% to 0.6%. Projections raised the 2023 CPIF from 6.0% to 6.1% and maintained the 2024 CPIF at 2.7%.

- Hungary PM Orban gave a year-end speech and noted that 2024 inflation could be lower than previously expected.

- Indonesia Central Bank Gov Warjiyo pre-rate decision press conference noted that domestic consumption was seen rising in 2024 but a number of risks could increase uncertainty again. IDR currency (Rupiah) had appreciated amid the easing of global uncertainty; Remained manageable. Remained watchful of further risks on the FX front; To monitor risks to ensure stability. Inflation was seen within target for 2024 and 2025 period.

- Indonesia Central Bank Policy Statement reiterated its pre-emptive policy was consistent with IDR currency (Rupiah) stabilization measures and ensured that inflation stayed within target.

- China Commerce Ministry (MOFCOM) stated that the US was abusing export control measures. To work with PBoC and other departments to effectively respond to risk of exchange rate fluctuations.

- Chinese largest banks said to plan to cut deposit rates on Fri, Dec 22nd.

- China Finance Ministry (MOF) said to adjust import tax for some goods to aid manufacturing development; effective Jan 1st 2024.

Currencies/fixed income

- USD was steady on some safe-haven flows as equity markets took some profits in thin-liquidity conditions.

- EUR/USD at 1.0945 area as ECB speak continued to walk back market expectations of an early ECB rate cut.

- USD/JPY was at 143.25 with focus on Friday’s release of Japan National CPI data. Japan Cabinet Office raised its CPI and GDP forecasts for both FY24 and FY25. It raised FY23/24 (current year) Headline CPI from 2.6% to 3.0% and raised the FY24/25 Headline CPI from 1.9% to 2.5% (both above BOJ target).

Economic data

- (NL) Netherlands Nov Unemployment Rate: 3.5% v 3.6% prior.

- (UK) Nov Public Finances (PSNCR): £12.5B v £11.8B prior; PSNB (ex-banking groups): £14.3B v £13.0Be; Net Borrowing: £13.4B v £13.0Be; Central Govt NCR: £17.4B v £18.2B prior.

- (NO) Norway Nov Trend Unemployment Rate: 3.7% v 3.6% prior.

- (ID) Indonesia Central Bank (BI) left its 7-Day Reverse Repo Rate unchanged at 6.00% as expected.

- (FR) France Dec Business Confidence: 98 v 97e; Manufacturing Confidence: 100 v 98e; Production Outlook Indicator: -10 v -11 prior; Own-Company Production Outlook: 4 v 6 prior.

- (FR) France Nov Retail Sales Y/Y: -3.8% v -2.6% prior.

- (CH) Swiss Nov M3 Money Supply Y/Y: -3.3% v -2.6% prior.

- (ES) Spain Oct Total Mortgage Lending Y/Y: -27.5% v -23.6% prior; Mortgage Approvals Y/Y: -22.3% v -29.6% prior.

- (SE) Sweden Dec Consumer Confidence: 74.5 v 73.2 prior; Manufacturing Confidence: 95.1 v 99.1 prior; Economic Tendency Survey: 84.3 v 84.9 prior.

- (HK) Hong Kong Nov CPI Composite Y/Y: 2.6% v 2.7%e; Underlying CPI Y/Y: 1.6% v 1.7% prior.

- (HK) Hong Kong Q3 Current Account Balance: $103.6B v $50.0B prior; Balance of Payments (BoP): +$16.1B v -$90.5B prior.

- (NO) Norway Dec Unemployment Rate: 1.9% v 1.9%e.

- (IS) Iceland Dec CPI M/M: 0.4% v 0.4% prior; Y/Y: 7.7% v 8.0% prior.

- (IS) Iceland Nov Wage Index M/M: 0.3% v 0.4% prior; Y/Y: 10.8% v 10.9% prior.

- (PL) Poland Nov Real Retail Sales M/M: -2.8% v -1.7%e; Y/Y: -0.3% v +1.4%e; Retail Sales (current prices) Y/Y: 2.6% v 3.7%e.

- (PL) Poland Nov Construction Output Y/Y: 3.9% v 7.4%e.

- (IT) Italy Nov PPI M/M: -1.2% v +2.2% prior; Y/Y: -16.3% v -12.4% prior.

Fixed income issuance

- None seen.

Looking ahead

- (EG) Egypt Central Bank (CBE) Interest Rate Decision: Expected to leave Key Rates unchanged.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 06:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to raise the One-Week Repo Rate by 250bps to 42.50%.

- 06:00 (UK) Dec CBI Retailing Reported Sales: -14e v -11 prior; Total Distribution Reported Sales: No est v -9 prior.

- 06:00 (BR) Brazil Central Bank (BCB) Quarterly Inflation Report.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Dec 15th: No est v $588.3B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Q3 Final GDP Annualized(3rd reading) Q/Q: 5.2%e v 5.2% prelim; Personal Consumption: 3.6%e v 3.6% prelim.

- 08:30 (US) Q3 Final GDP Price Index: 3.6%e v 3.6% prelim; Core PCE Q/Q: 2.3%e v 2.3% prelim.

- 08:30 (US) Initial Jobless Claims: 215Ke v 202K prior; Continuing Claims: 1.88Me v 1.876M prior.

- 08:30 (US) Dec Philadelphia Fed Business Outlook: -3.0e v -5.9 prior.

- 08:30 (CA) Canada Oct Retail Sales M/M: 0.8%e v 0.6% prior; Retail Sales (ex-auto) M/M: 0.5%e v 0.2% prior.

- 08:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to cut 2-week Repurchase Rate by 25bps to 6.75%.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:45 (CZ) Central Bank Gov Michl post rate decision press conference.

- 10:00 (US) Nov Leading Index: -0.5%e v -0.8% prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (US) Dec Kansas City Fed Manufacturing Activity: -4e v -2 prior.

- 11:00 (EU) ECB’s Lane (Ireland, chief economist).

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 10 Year Bonds.

- 13:00 (US) Treasury to sell 5-Year TIPS Reopening.

- 14:00 (AR) Argentina Oct Economic Activity Index (Monthly GDP) M/M: -0.6%e v 0.0% prior; Y/Y: -0.4%e v -0.7% prior.

- 14:00 (AR) Argentina Q3 Unemployment Rate: No est v 6.2% prior.

- 18:00 (NL) Netherlands Nov House Price Index M/M: No est v 0.7% prior; Y/Y: No est v -2.3% prior.

- 18:30 (JP) Japan Nov National CPI Y/Y: 2.8%e v 3.3% prior; CPI Ex Fresh Food (core) Y/Y: 2.5%e v 2.9% prior; CPI Ex Fresh Food/Energy (core-core) Y/Y: 3.8%e v 4.0% prior.

- 21:35 (CN) China to sell 7-year bonds.

- 21:35 (CN) China to sell 3-month and 6-month Bills.

- 22:30 (JP) Japan to sell 3-Month Bills.

- 23:00 (MY) Malaysia Nov CPI Y/Y: 1.7%e v 1.8% prior.